Desperately seeking suitors with loads of cash
What’s going on in Australia? Is the country’s beverage industry running a shop clearance sale? Everything but the girl must go? According to media reports, the Foster’s Group, the listed wine company Treasury Wine Estates and Independent Liquor, a private equity-owned producer of alcopops, have all been tagged for disposal.
In the case of Foster’s and its refusal to accept a USD 10.2 billion takeover offer from SABMiller, the board seems to await the next move by SABMiller.
SABMiller, along with Foster’s shareholders and hedge funds, is trying to find the magic price that would clinch a sale of the Australian icon.
For SABMiller, its final bid price will factor in the cost of losing two lucrative beer licenses, Stella Artois and Corona Extra, which contribute more than AUD 100 million (USD 107 million) a year to Foster’s pre-tax profit. Foster’s total EBITDA in 2010 was AUD 1.2 billion and bankers estimate EBITDA in 2011 will be AUD 894 million, which makes Stella Artois and Corona Extra significant contributors.
There is no guarantee that Foster’s would lose these licenses with a change in ownership but it is possible.
Another issue which SABMiller will factor in is Foster’s IT system. The IT platform is shared between Foster’s and its separately listed wine business, Treasury Wine Estates. Foster’s and Treasury Wine Estates are trying to split the integrated platform but this will take until 2013 at a cost of AUD 42 million (USD 45 million).
Foster’s full-year results will be out in August and the market isn’t expecting anything too exciting. If Foster’s CEO John Pollaers fails to convince investors of growth prospects, pressure will mount on the board to accept a takeover offer – fast.
Market observers say time has run out for Foster’s. It is now about getting the best price.
Foster’s possible takeover has already sparked hopes among Treasury Wine Estates’ shareholders that the wine company could be next in line. In early July 2011 it was reported that the Shanghai-based food and dairy company Bright Food was considering making an offer for Treasury Wine Estates. The same day shares of Treasury Wine Estates shot up 11 percent. Treasury Wine, with brands including Penfolds, Rosemount and Beringer, had been spun off by the Foster’s Group in May 2011 to its shareholders.
Although the government-controlled Bright Food Group has since denied the rumour, it reiterated its intention to actively look for acquisitions overseas in its core businesses, which include wine, sugar and dairy, to boost its profile and cater to a rapidly growing domestic market.
Earlier this year, Bright Food was rumoured to be the highest bidder for a controlling stake in the French yoghurt maker Yoplait, but in the end the stake went to U.S. food company General Mills, which paid about USD 1.15 billion for it in May 2011. Likewise Bright Food failed to acquire CSR, the biggest sugar supplier in Australia, in 2010.
Perhaps it’s twice burnt, hence shy for the Chinese?
Foster’s, Treasury Wine – what’s left? Ah, Independent Liquor. The maker of alcopops had been founded by Kiwi entrepreneur Michael Erceq, who died in a helicopter crash in 2006. His widow then sold the company, whose brands include Woodstock, Vodka Cruiser and Purple Goanna, to a duo of private equity outfits, Pacific Equity Partners and Unitas, which paid the heady sum of NZD 1.3 billion (USD 1.1 billion), dramatically outbidding buyers such as Brown-Forman, Lion Nathan, Diageo and Asahi.
Media sources say the booze empire Independent Liquor is in play as the buyout firms seek an equity investor in the loss-making operation. The two investors are putting out feelers to sell down their holding in the company which posted a loss of NZD 22.7 million (USD 18.8 million) in its latest 12 months, it was reported.
The initial attraction of Independent was its strong cash flows and the fact that Australia was an anomaly in the global alcohol market. The penetration of ready-to-drink beverages (alcopops) was twice as high as that of any other market, including Britain and New Zealand.
But the global financial crisis, a massive hike in taxes on alcopops (the group’s main line of business) and changing consumer tastes, slashed revenue and forced the private equity owners to pump in up to NZD 50 million in fresh equity through the issue of new shares in a New Zealand company called Flavoured Beverages Group Holdings.
Valuations put Independent Liquor’s enterprise value at between NZD 500 million and NZD 1 billion (USD 414 million to USD 828 million).
It’s a guessing game as to who might save Independent Liquor’s two owners from taking a massive haircut on their entry price.
